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KGB: Prime Minister Julia Gillard

The prime minister says Australian restrictions on Chinese state-owned investment were not the only stumbling block to a free trade agreement, while China holds strong opportunities for Australian public policy exports.

Alan Kohler: So, last week just after the visit to China the Trade Minister Craig Emerson said that a free trade agreement with China was out of Australia’s reach because you’re deadlocked. So, do you agree with that? That was a sour note, wasn’t it, on the back of what was a pretty good trip to China?

Julia Gillard: Look, the point Dr Emerson has been making is that, you know, this is a complex proposition for both of our economies, that there are sensitivities on both sides. And so what Dr Emerson has been working on with his Chinese counterpart is just seeing if there are some things we can agree on, so rather than waiting to see if we can get agreement on everything and nothing gets done until you’ve agreed everything, whether or not there are some sections where you can agree now – which I think is a productive approach.

AK: But it’s taken a long time. I mean it does seem to be at odds with the rest of the relationship that you were forging last week.

JG: Look, it has taken a long time and there’s more to do. We’re not there yet. But international trade negotiations are complicated. Bilateral agreements are never easily won. People look at New Zealand and say well New Zealand has got one; why can’t Australia? But we are talking about an economy that is far less diverse than ours and so I think that is the explanation as to why New Zealand was able to strike an agreement. With our diversity, with our broad intersection with China, yes there are complexities, yes there are sensitivities, so I think the path that the trade minister wants to take does make a lot of sense.

Stephen Bartholomeusz: That narrow focus that you referred to a moment ago was on agriculture?

JG: Yes, it is.

SB: What’s the potential of that? And if it’s to be realised, do we have to change productivity within our own agricultural sector?

JG: Well, our farmers are actually incredibly productive. I mean this is not a forgiving land. It can be a very harsh land for our agricultural producers, but notwithstanding that our farmers are very productive. Where I think is the next big opportunity for us to add productivity is in our food processing sector, so I can see a future for us which is all on the upside, where we would be exporting China and other countries in our region. As their middle class consumers rise they will want the kind of foodstuffs that we have; the wines that we have, the Australian beers, the list goes on. So, there are many ways that we can work together. We’ve got to make sure that we’re continuing to welcome investment from China and we will. And I think we can see a happy coincidence of productive farmers, investment in food processing, better food processing and that going into a Chinese middle class market.

SB: The stumbling block on that larger FTA though was the restrictions we give to state owned enterprise investments in Australia. They want a billion dollar threshold where they don’t get scrutiny. You haven’t actually knocked back any application from a SOE. You’ve amended some. So, why wouldn’t we just get rid of the restriction?

JG: This is one of the sensitivities. It’s not the only sensitivity, so it would be wrong to say well that’s the stumbling block and if we just made a different decision on that, the Chinese FTA would be done. We have maintained that it’s in our national interest to have appropriate review processes, but at the same time that the factual story of what happens gets told. And when I was in China I very frequently made the point that during the life of this government, there have been almost four hundred Chinese foreign investments in Australia that have been the subject of review by the Foreign Investment Review Board and none of them has been knocked back; six of them have had conditions put on them. So, if I could reverse engineer your question, what is to fear from a national interest foreign investment review process that has such a great strike rate for welcoming inward investment into Australia?

RG: I want to take you back to our commissional export business, the minerals business. What do you believe is the outlook for our mineral exports – not this year or next year but over the next five years? Do you think they’re going to steady or they’ll continue to grow? You’ve had a lot of talk to the Chinese people – what are they telling you?

JG: I think we’ll see them continue to grow. I mean prices have come off a bit. There’s, you know, no doubt about that and in fact the commodity price adjustment last year was sharper than many predicted, so prices have come off. But I think we are progressing through a knowable pattern of change in our resources boom, so we are yet to see the peak of the investment boom and beyond the peak of the investment boom we will see production for decades and decades to come. Commanding good prices I think and readily finding markets including China.

RG: A message of this seminar or from the speakers at the seminar has been ‘Australia has had four fantastic years, don’t expect that to be repeated for a long time’.

JG: Well, I’m not sure that we’re going to be able to say the absolute peak of commodity prices is going to be repeated.

RG: No. A peak in volume as well though.

JG: Well look, I think, you know, there may be some adjustments in volume but it’s still going to be a very large volume. I mean one of the things that I think gets instated in our domestic dialogue about the economy with China and its demand is people see Chinese growth rates coming off a bit and that sort of starts a negative cycle of talk in Australia. But you know with the growth rates we’re seeing now, even with them coming off a bit – and you’ve got such a huge economy still growing at very strong rates – that’s still very strong growth. I think overwhelmingly the prospects are good for resources. There is nothing to fear here. The absolute peak of the price cycle has probably passed, but we will still be doing good business in resources. It will be supporting jobs.

RG: Apart from food, which non mineral industries do you think will be the main growth industries, as far as Australia is concerned, with China?

JG: Well, I listed some tonight and I am very optimistic about this. I think we will continue to do good business in resources. I think there are huge opportunities in agriculture and food processing. I think there are amazing opportunities in our services sector; legal services, architectural services. There’s more room for growth in education services. There’s more room for growth in inbound tourism.

I think we will actually be able to export public policy expertise. And people might say ‘what does that mean?’ Well, China needs to move to domestic sources of growth including better social safety nets and we are good public policy producers; the things we’ve done with Medicare, with universal superannuation, with carbon pricing and carbon market design, other sorts of public policy services, that can be sold on to China. So, I actually think that there are all sorts of potentials for our economy and their economies to continue to find new ways of working together. I think we’ve got deeply complementary economies beyond the resources boom.

AK: A lot of people wise in these matters say that it’s not a question of whether Australia will have to choose between America and China, but it’s a question of how do we avoid it – given that now our main trading relationship is with a different country than our main strategic relationship. And in fact a Hugh White, in column last week you might have read, put your visit to China and the strategic partnership with you signed and the talk that you did there in the context of that sort of rivalry between America and China. I mean how do you see that?

JG: I don’t accept the premise. And I know we’ve got a lot of public policy debate about this in our newspapers and that’s a good thing – but I don’t accept the premise that this is a zero sum game and I actually think I’m entitled to sit here and go to the scoreboard. I mean I have enhanced our alliance with the United States by having a training arrangement for Marines in Darwin at the same time that we have taken our relationship with China to the new level, to quote their president, not me, with annual leaders’ level exchanges and everything else we’ve achieved on this visit to China.

AK: But that wasn’t tit for tat in some way, for the Marines training thing in Darwin?

JG: Well, but the premise of the zero sum game theory is if you’ve got more on one side, it would necessarily prejudice your ability to get more dealing with the other nation. I think this premise is wrong. I mean peace and prosperity are not zero sum games. The more you build peace, the better peace is for everyone. The more you build prosperity, the more prosperity there is to share. These are not zero sum games and I think, you know, in my own experience as prime minister let alone any theorising I might do about the general position, but in my own experience as prime minister I can show it that you can, you know, build a new aspect of a long-term alliance with our great ally America at the same time as you nurture the relationship with China to a new stage.

RG: Prime Minister, that works as long as the two parties, that’s China and the US, don’t fall out and if they do fall out, you’ll be caught in quite a nasty situation. We might lose both of these.

JG: But I think that underestimates the deep, deep strategic interests in both the US and China making their relationship work and I think in some of our dialogue in Australia people underestimate the depth of that relationship. The US and China are deeply engaged. They are engaged at every level. Their economies are intertwined too. Their business communities, education and political leadership are all understanding how there will be, you know, strategic competition. That’s inevitable with two great powers, but both I think understand how catastrophic true strategic rivalry would be and they’ve both got a big vested interest in building it.

SB: If I remember correctly, you first visited China as prime minister in 2011 and you met the old leadership of China. This time you met the new leadership. Are there meaningful differences, obvious differences between both the style and personality of policies between the two sets?

JG: I’ve had the opportunity to meet former President Hu and former Premier Wen on a number of occasions. I mean I’ve visited China, but the nature of multilateral diplomacy in the modern age means that there are many times that bring you together; G20, East Asia Summit, APEC, and the list tends to go on, Asia Europe meeting, all of those kinds of things. Which does give you an opportunity to see people if not in a formal bilateral, then at least in the margins of the meeting a number of times. Which enables you to develop a sort of personal relationship, which I think is good. Look, I always felt that I was having constructive conversations and good dialogue with President Hu and Premier Wen. I think part of the change, the sort of generational change that this new Chinese leadership represents is we are dealing with people who have more modern manners, if I can put it that way, more, you know, outgoing, more engaged, less formal – I don’t mean any of that as a criticism. I think if we trapped generations in Australia and their ways of dealing with each other, we could see that transition too. And I think we’re also seeing people more deeply familiar with, you know, Western ways and in President Xi’s case particularly with Australia and Premier Li is no stranger to Australia either. So, I think that helps. It helps, you know, build a bond of trust and communication.

AK: Do you think these two leaders will lead China in a different direction?

JG: Well, I think that President Xi in particular is outlining a vision, and we will see that deepen and get more textured as his leadership goes on. But I think he has employed this notion of the Chinese dream to not only talk about national achievement, but within the umbrella of national achievement to talk about individual achievement and individual goals and aspirations. So I think we can see already a difference there and I believe as leadership goes on with Premier Li that we’ll see more detail and depth of their vision.

RG: Will they tackle corruption, do you think?

JG: Well, they’ve certainly stated that they would and it’s in the long-term interests of everyone involved for corruption to be tackled.

AK: Thanks for joining us, Prime Minister.

JG: Thank you very much.

RG: Thank you.

SB: Thank you.

Alan Kohler

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